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Stock Options and Long Term Incentive Plan
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Sep. 30, 2013
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| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Options, Long Term Incentive Plan and Phantom Stock Appreciation Rights |
Stock Options and Long Term Incentive Plan
Stock Options and Restricted Stock
Prior to the LMC Spin-Off, Old LMC granted, and Starz has since granted to certain of its directors and employees, stock options to purchase Series A common stock and restricted shares of Series A common stock pursuant to Old LMC incentive plans, which are now the Starz incentive plans. As of September 30, 2013, the total unrecognized compensation cost related to the unvested stock options and restricted stock was approximately $71.6 million. Such amount will be recognized in Starz’s condensed consolidated statements of operations over a weighted average period of approximately 2.81 years.
In connection with the LMC Spin-Off, all outstanding stock options and stock appreciation rights with respect to Old LMC’s Series A common stock (the “Liberty Capital Awards”) were adjusted pursuant to the anti-dilution provisions of the incentive plans under which the equity awards were granted, such that a holder of a Liberty Capital Award received i) an adjustment to the exercise price or base price and the number of shares for each Liberty Capital Award (as so adjusted, a “Liberty Media Award”) and ii) an equity award of shares of Series A common stock (a “Starz Award”).
The exercise prices and number of shares subject to the Liberty Media Award and the Starz Award were determined based on i) the exercise prices and number of shares subject to a Liberty Capital Award, ii) the pre-distribution trading price of Series A common stock and iii) the post-distribution trading prices of Liberty Media common stock and Series A common stock. For employees of Starz, the pre-distribution intrinsic value of the vested Liberty Capital Award was allocated between a vested Liberty Media Award and a vested Starz Award, while the pre-distribution intrinsic value of the unvested Liberty Capital Award was maintained solely within an unvested Starz Award. For Liberty Media’s employees and directors, the pre-distribution intrinsic value of the Liberty Capital Award was allocated between a Liberty Media Award and a Starz Award.
Following the LMC Spin-Off, employees of Starz and Liberty Media hold awards in both Series A common stock and Liberty Media common stock. The accompanying condensed consolidated statements of operations include compensation expense related solely to employees of Starz.
Awards granted during the nine months ended September 30, 2013 are summarized as follows:
Of the total 2013 stock option awards, options to purchase 2,666,983 shares vest quarterly over a 4 year period and have a term of 7 years and options to purchase 3,363,123 shares vest 50% on each of December 31, 2015 and 2016 and have a term of 10 years. Starz calculates the grant-date fair value for the stock options using the Black-Scholes Model. The expected term used in the Black-Scholes calculation was a range of 4.70 to 6.92 years. The expected volatility was 41.35%. The expected volatility used in the calculation for the awards is based on the historical volatility of Series A common stock and the implied volatility of Old LMC’s publicly traded options. Starz used a zero dividend rate as Old LMC/Starz has not historically declared dividends and a range of risk-free rates of 0.7% to 1.2%, which was derived from U.S. Treasury Bonds with a term similar to that of the subject options. The grant-date fair value of 308,409 restricted shares granted in 2013 was based on the market value of Series A common stock at the grant date of $18.93 per share and the grant date fair value of 2,093 restricted shares granted in 2013 was based on the market value of Series A common stock at the grant date of $24.43 per share. During 2013, 6,480 shares of restricted stock were forfeited. Of the remaining 304,022 restricted shares granted, 47,453 will vest on March 4, 2014 and 256,569 will vest annually over four years beginning March 4, 2014.
The following table presents the number of options and weighted average exercise price (“WAEP”) for the activity during the nine months ended September 30, 2013:
At September 30, 2013, the weighted-average remaining contractual terms of the outstanding options is 6.2 years and the exercisable options is 4.4 years. At September 30, 2013, the aggregate intrinsic value of the outstanding options is $245.8 million and the exercisable options is $55.7 million.
At September 30, 2013, 3.4 million of the outstanding stock options and 1.3 million restricted shares were held by Liberty Media employees.
Long Term Incentive Plan
Starz, LLC granted incentive units to certain officers and key employees (“Plan Participants”) under the 2006 long term incentive plan (“2006 LTIP”). Such grants vested over a period of four years and were fully vested as of June 30, 2011. All remaining amounts due under the 2006 LTIP were paid in the second quarter of 2013. During the nine months ended September 30, 2013 and 2012, Starz made payments of $3.2 million and $33.4 million, respectively, to Plan Participants under the 2006 LTIP.
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